Can we claim SR&ED expenses that are unpaid within 180 days of year-end?
There is a provision in the SR&ED legislation (ITA subsection 78(4)) that delays an investment tax credit for any costs that remained unpaid within 180 days of year-end. These costs must be included in the claim for the year in which they were incurred, and will be reviewed at that time along with the rest of the claim, however tax credits will be paid on these amounts only in the years in which they are actually paid.
This legislation surrounding "unpaid amounts" can be used as a tax planning vehicle for cash strapped start-up R&D companies to maximize their investment tax credit claims. Start-up companies may have employees working for little or no renumeration. These companies may wish to consider accruing reasonable salary and wages for the work performed. If this transaction is properly structured, employees will not have to pay tax on wages until they are received, and the company will receive entitlement to the credits in the fiscal year in which these wages are paid.
It should be noted that deferred wages are excluded from the proxy overhead calculation (per Income Tax Regulations 2900(9)). Depending on the amount of wages being deferred, and the amount of overhead related to SR&ED, it may be advantageous to use the traditional overhead calculation in this case.